Tanning Tax Income Pales Compared With Estimate, Audit Finds

Revenue from a 10 percent excise tax
on indoor tanning services mandated by the 2010 health-care
overhaul law is falling short of projections, a government
watchdog reported today.

The tax brought in $17.8 million in the last quarter of the
2010 fiscal year and $36.6 million in the first half of fiscal
2011, according to the report by J. Russell George, the Treasury
Department’s inspector general for tax administration.

The tanning levy was projected to generate $2.7 billion
over 10 years, including $200 million for fiscal 2011, according
to the congressional Joint Committee on Taxation.

George attributed the lower-than-projected revenue to a
smaller number of taxpayers than anticipated filing returns with
the excise tax payments. George cited IRS documents indicating
that there were an estimated 25,000 businesses providing indoor
tanning services in 2010.

“The actual number of businesses liable for the tax has
been difficult to determine with any degree of accuracy,” the
report says.

For the first three fiscal quarters that the tax has been
in force, the number of federal excise tax forms reporting
tanning taxes has averaged about 10,300, the report found.

‘Tight Deadline’

“The IRS quickly implemented the tanning tax under a tight
deadline,” George said in a statement accompanying the report.
“Since this was a brand-new tax imposed on a group of
businesses and taxpayers with no previous experience with excise
taxes, the IRS should have done more to inform taxpayers of
their filing responsibilities and bring them into compliance in
a timely manner.”

The IRS agreed with George’s recommendations to identify
more potential taxpayers and to provide more information about
the tanning levy in the agency’s excise tax publication.

In a statement, IRS spokeswoman Michelle Eldridge noted the
report’s finding that there is no authoritative list of tanning
businesses subject to the tax.

“The IRS has taken numerous steps to identify and educate
the potential businesses that could be liable for this tax,”
Eldridge said. “IRS has already contacted a number of
businesses who have not filed and may potentially be required to
do so.”

Confusion Over Tax

John Overstreet, executive director of the Washington-based
Indoor Tanning Association, a trade group, said in an interview
today that the lower revenue results, at least in part, from
confusion about who owes the tax.

Gyms and health clubs that offer tanning as an ancillary
service are exempt from the tax. Hair salons and movie-rental
outlets with tanning beds are subject to the tax, Overstreet
said.

“I don’t think the IRS has its arms around this
industry,” he said. “My guess is that a lot of people who are
supposed to be paying the tax don’t even know about it.”

The tanning industry opposes the tax and has been lobbying
Congress to eliminate it.

The tanning tax is one of the smaller taxes in a mosaic of
levies and fee increases totaling about $409 billion through
2019 that Congress assembled to pay for the 2010 health-care
overhaul.